Morgan Stanley Expects Alibaba's Stock To Double Following Its Overhaul

Following Alibaba's announcement that it will be splitting into six business groups, the company's shares soared after the announcement of the change.

‍

As a result of this restructuring, Alibaba shares have gained positive sentiment from major Wall Street banks, with Morgan Stanley stating that Alibaba's share price could rise by more than 100 percent if this restructuring goes through.

‍

In order to implement Alibaba's restructuring, six independent business groups will be set up, each with its own management team and board of directors, which will allow each of them to raise funds independently and pay dividends to shareholders without the need for Alibaba's approval, except for one division, which will remain Alibaba's sole asset.

‍

After closing 15% higher on Tuesday on the New York Stock Exchange, Alibaba shares closed 15% up in Hong Kong on Wednesday.

‍

Alibaba shares, which trade under the symbol BABA in the U.S., are trading at a significant discount to what analysts believe they should be worth based on the sum of their parts, and the restructuring could increase this value significantly.

‍

Several analysts at the Wall Street bank have commented that the stock's price-to-earnings ratio of nine times in 2024 indicates that the market has given zero value to the non-core e-commerce division of the company. Morgan Stanley has estimated that Alibaba's vast e-commerce and retail operations account for more than half of its valuation.

‍

There was an analyst note, headed by Gary Yu, sent to Morgan Stanley clients on March 28., in which they stated that they could "see the possibility of exceeding the bull case of US$200 per share by more than 2x.".

‍

We reiterate BABA as our top pick in the China Internet sector because of the gradual recovery of consumption in China and the potential catalyst of corporate restructuring.

‍

A separate research note to clients, published on the same day, noted that the company believed the share price would increase in absolute terms over the course of 60 days.

‍

“As a result, we believe that BABA is one of the top beneficiaries of the opening of China and stands as an indicator for foreign investment flowing into China in the future. We estimate that there is about an 80% probability (or "highly likely") for this scenario to come true."

‍

Alibaba is not the only investment bank that has a bullish view of the company.

‍

According to Jefferies, the reorganization will also allow different departments to respond better to market changes as a result of the reorganization.

‍

Alibaba's shares are currently trading at a "significant discount" to its sum-of-all-parts valuation, according to the investment bank's calculation.

‍

According to Jefferies analysts, Alibaba shares were expected to rise by 22% to $120 a share prior to the announcement of the restructuring plans.

‍

According to analysts at Baird, the reorganization has also contributed significantly to the increase in the value of Baird stock for investors.

‍

“The value of this business is unquestionable. You get Ant for free when you invest in this business. For me, this is good news. But it will have to wait and see,” said Tim Seymour, CEO of Seymour Asset Management, which is an investment firm that manages other businesses as well.

‍

According to Seymour, it is "hard to believe" that China is interested in creating the spinoff, and that it does so with good intentions. 

‍

As a result of the continued struggles with the growth of the Chinese technology giant over the past few quarters, the company has lost roughly $600 billion of market value since its peak in October 2020, when the company underwent a major overhaul. Several technology companies, including Alibaba and Tencent, are having their share of the problem partly as a result of the government's crackdown on technology companies.

‍

As the world's second-largest economy, however, there are signs that Beijing is slowly warming up to technology businesses, in an effort to revive the economy's growth in the second largest economy in the world.

‍

It has been reported that Alibaba chairman and CEO Jack Ma has returned to China, perceived as the Chinese government's olive branch after being overseas for several months and out of the public eye.